It is true what they say about property cycles; if you wait till the market has bottomed you will have already missed all the deals, the best of which will have been bought up by smarter investors.
This is being displayed currently in America, as investor participation in the market drops sharply and agents across the country report that the smart investors are leaving, and now only novice investors are buying because all the best deals have gone.
According to the Campbell/Inside Mortgage Finance HousingPulse Tracking Survey, investors were responsible for 21.9 per cent of house sales in America in July, down from 23.5% in June and from a 2 year peak of 25.3% in May. The survey is based on a 3-month moving average.
The survey is backed by statements from agents across the country reporting that rising prices have caused an exodus of serious investors, leaving only novice investors. Agents in both California and Massachusetts said that investors are dropping out because prices are too high.
"Investors are having a hard time finding what they want. Starting to see 'dumb' investors enter the market, the 'smart' ones are exiting the buying," reported an agent from Arizona. "Investors need a deal. There are not as many opportunities as there was this time last year. It seems all the rookie investors are buying now and paying too much," observed an agent in Florida.
The trend was exacerbated by a sharp drop in the number of distressed properties, which fell to 42.2% of all houses for sale, down from 45.1% in June, and 46.1% in June according to the HousingPulse Distressed Property Index (DPI). However, this was not the only reason, because the survey also found that investors were responsible for purchasing 11.5% of non-distressed properties in July, which is down significantly from the 14.4% recorded in May.
Thankfully the gap is being filled by normal buyers. According to the survey home-owners were responsible for 43.5% of home purchases in July, up from 42% in June and 40.3% in May. The remaining 34.6% of homes were purchased by first time buyers, a figure which has remained largely flat during the covered period, as first time buyers continue to struggle finding mortgages.
"Overall home-buyer demand and home price appreciation is being driven by historically low interest rates," commented Thomas Popik, research director for Campbell Surveys. "But savvy investors are the canaries in the coal mine-they are warning that if rates rise, the high proportion of distressed properties could once again push home prices down."
Whilst general statistical reports like these can paint a gloomy picture, it's not to say deals cannot be found, particularly with distressed property in the US - it's a case of knowing where to look.
- Thursday 30 August 2012